Insights 
VT 
The Australian Monthly CPI Indicator monitors changes in the price of a ‘basket’ of goods and services. Unlike the comprehensive quarterly CPI measure, it does not provide a complete assessment.
July, as the first month of the June quarter, tends to focus more on goods, offering less insight compared to other months. August provides a more balanced view, capturing key services that better represent domestic inflation trends, with its data expected on 24 September, just before the RBA meeting on 29–30 September.
July Inflation Expectations
The July CPI data is anticipated to show an increase from June. This increase is predicted to be 2.3%, which remains within the lower half of the Reserve Bank of Australia’s target band of 2 – 3%.
We are treating the upcoming July CPI indicator as a minor event that could still create short-term market noise. While the expected 2.3% figure is comfortably within the Reserve Bank’s target band, any significant deviation could cause a knee-jerk reaction in the currency. We remember how a surprise 4.0% print in May 2024 briefly sent the Aussie dollar climbing before the market remembered the data’s volatility.
The real focus for us is the August inflation data, which is due on September 24th. This release is much more important because it includes key services prices, giving a better signal of underlying domestic price pressures. This will be the most critical data point influencing the RBA’s interest rate decision at its meeting on September 29th.
Interest Rate Implications
Looking back, the RBA has held the cash rate steady at 4.35% since late 2023, waiting for definitive proof that the inflation fight is won. The market is currently pricing only a small chance of a rate cut before the end of this year, a sentiment that has been firming since unemployment ticked up to 4.2% last month. A weak August CPI print could dramatically shift rate cut expectations forward into late 2025, while a strong number would likely solidify a “higher for longer” stance.
Given this setup, we see value in buying short-term options to trade the expected volatility around the September 24th data release. A simple straddle on the AUD/USD allows us to profit from a large price move in either direction, without having to bet on whether the inflation data will be strong or weak. The increased uncertainty leading into the RBA meeting makes this a compelling strategy.
Another approach is to use interest rate futures to position for the upcoming RBA meeting. If we anticipate a soft August inflation report, we could buy 30-day Interbank Cash Rate Futures, betting that the RBA will adopt a more dovish tone. This provides a direct way to trade on the shifting expectations for monetary policy over the next month.
